India Slam Brakes on Cotton Exports

· No Shipments from 5 March

· Goods in Transit Halted

· Contracts already registered with DGFT as a legal requirement will not be honoured. (Our estimate is that India will lose annual Rs. 20,000 Crs ($4bn) export market).

The DGFT has banned cotton exports with immediate effect by a Notification issued on 5 March.

It is believed that exports are excessive with the target of 8.4mn bales for the 12 months in the cotton year Oct-Sept 2011-12 with exports reaching 8.4mn bales in the first six months. China is guzzling 80% of the supply.

Traders in India had signed contracts for nearly 10 million bales in total for export at $1.01-$1.03 per lb, including those already shipped. It is feared that there is not enough cotton left with only 23mn bales for spinning and other downstream applications.

The ban may give a push to downstream exports to yarn, made ups, fabrics and garments. (We can expect a clamp down on yarn exports soon on the lines of previous experience in Nov-Dec 2010 when it was under licensing).

Cotton prices in the domestic market are hovering around 34,000-35,000 rupees per candy of 356 kg each. They hit a record high of 61,700 rupees per candy in March 2011. Price will crash now.

International cotton prices rose in 2011 but are relatively steady this year. The export ban will create turbulence in the world market. India has the largest acreage under cotton in the world and is the second largest producer after China.

Cotton Advisory Board cut its estimates for cotton harvesting in the 2011/12 season ending Sept. 30 to 34.5 million bales of 170 kg each from its earlier projection of 35.6 million bales.

China can challenge the ban at WTO claiming that the Indian action is violative of Art XI of GATT 1994 under which export restrictions are not allowed. However, China itself is guilty of slapping export restrictions and has recently lost heavily at WTO on both the original as well as appeal side.

[DGFT Notification No. 102 dated 5^th March 2012]

Subject: Prohibition on export of cotton (Tariff Codes 5201 and 5203).

In exercise of the powers conferred by Section 5 of the Foreign Trade (Development & Regulation) Act, 1992 (No.22 of 1992) read with Para 2.1 of the Foreign Trade Policy, 2009-14, the Central Government hereby makes the following amendments with immediate effect in respect of Sl. No. 161 A {ITC(HS) Classification} in the Notification No. 74(RE-2010)/2009-14 dated 12.09.2011 :-

2. The entries against Sl. No. 161 A in Chapter 52 of ITC(HS) Classification} are substituted as follows:-

Chapter 52
S. No.	Item Tariff Code	Unit	Item Description	Export Policy	Nature of Restriction
161 A	5201		Cotton, not carded nor combed	Prohibited	Not permitted to be exported.
	5203		Cotton, carded or combed	Prohibited	Not permitted to be exported.

3. Transitional arrangements under para 1.5 of Foreign Trade Policy, 2009-14 will not be applicable. Further, export against registration certificates already issued will also not be allowed.

4. Effect of this notification

(i) Export of cotton [ITC(HS) Codes 5201 & 5203] has been prohibited till further orders.

(ii) Transitional arrangements will not be applicable for the export of cotton.

(iii) Export against registration certificates already issued will also not be allowed.